One of the most significant unintended consequences of the passage of the Affordable Care Act (ACA) in March 2010 has been the ignition of another wave of consolidation activity among U.S. healthcare providers. Similar to the industry's response to the threat of managed in the mid-1990s, merger and acquisition (M&A) activity between multihospital health systems, stand-alone hospitals, large multispecialty medical groups, small independent physician group practices, and other provider organizations has accelerated dramatically in response to the ACA. According to Irving Levin Associates, the number of hospital mergers more than doubled between 2009 and 2012 (Creswell & Abelson, 2013). Tracking physician consolidation nationally is less precise, but Medical Group Management Association survey data suggest that the percentage of physicians working in practices owned by a hospital or an integrated delivery system increased from 24% in 2004 to 54% in 2012 (MGMA, 2013).At the end of the last wave of consolidation, by 2000, the overall percentage of hospitals in systems had increased from 38% to 52%. And since the Great Recession and passage of the ACA, nearly another 400 hospitals (10% of U.S. community hospitals) had joined multihospital systems and the percentage of hospitals in systems had increased to 62% by the end of 2013 (AHA, 2014). Additionally, these figures do not include the substantial number of announced that ultimately were never consummated. For a variety of factors (cultural, political, legal, and regulatory), transactions between nontaxable entities are significantly more time consuming, unpredictable, and difficult to close than are mergers between taxable entities. In spite of the challenges of successfully executing merger strategies, it seems that nearly all hospitals and health systems, from organizations worth $ 100 million to those worth more than $ 1 billion, are asking, Are we big enough to not merely survive, but to thrive, in the emerging postreform environment?Intended to reduce the fragmentation of delivery (thereby improving quality and reducing cost), the ACA has triggered market forces that are working to essentially flip the provider-side business model from fee-for-service (FFS) to value-/risk-based reimbursement models (e.g accountable care/shared savings, bundled payments, partial or full capitation arrangements). This shift is akin to auto insurers telling auto body shops that over the next few years the shops will increasingly be paid to prevent auto accidents rather than earn fee-for-service revenues to repair damaged vehicles. Traffic safety is no more a core competency for auto body shops than wellness, prevention, and coordination are for most community hospitals. Hospitals seeking to go it alone face a daunting level of investment in both financial and human resources to build the infrastructure and capabilities required to shift from an acute event-driven sick care system to a proactive prevention and coordination mind-set.Although the respective financial strength of both parties is certainly a key consideration in any business combination, pursuit of a merger to simply create a fortress balance sheet is not sufficient to position an organization for success in the valuebased marketplace. One of the lessons of the Great Recession is that even the most unassailable community hospital balance sheets can be compromised in a shockingly short period. In addition to shoring up the balance sheet, many hospital transactions have been justified in the pursuit of economies of scale. The literature suggests, however, that many, if not most, M&A transactions do not achieve the desired results. In fart, the most recent data released by the Synthesis Project, an ongoing national study by the Robert Wood Johnson Foundation, suggest that consolidation (absent true integration) does not lead to cost reductions or clinical improvement and may lead to enhanced market power for providers (Gaynor & Town, 2012). …
Read full abstract
Dec 31, 2014
Lipeng Ding + 5
Open Access